The cost of a new hire is not as simple, as, say, the cost of a new piece of equipment or shipment of inventory. Rather than making a single payment up front, you are paying for at least several months’ worth of expenses. Until your new hire begins to add to your revenue stream, he or she is merely an investment that is yet to produce a return. And this investment starts long before you decide who to recruit.
If you think this sounds intimidating, you’re just like almost every small business owner. Hiring just one employee is such a complex and significant investment that business owners often delay hiring for far too long. This might explain the select few people at your job who are handling responsibilities they didn’t sign up for and barely have enough time in the day to get their work done.
The Search Begins
Finding the perfect candidate takes time, time that would usually be spent on productivity. When looking to fill high-level positions, some companies must market themselves on social media and update their websites in order to convince candidates that this is the place for them.
Hours or even full days are then spent combing through résumés, responding to email queries, and scheduling interviews on dates convenient for both parties. The length of the interview process depends on the size of the company, with the average interview lasting approximately a half hour. According to a 2105 report from Glassdoor, it takes 23 days to decide on a candidate once the interview and screening processes are complete. It’s safe to assume that at least a week and a half’s worth of productivity was lost in the time leading up to the decision.
A Bump In The Road
Many companies take out working capital loans to offset the dip in revenue that occurs when new employees are being trained. This process takes at least a few weeks and often results in a slowdown in operations. It’s common for seasonal businesses to take on new hires during the slow season so they can prepare for the busy season. Sales are down during the slow season but with more working capital, you wouldn’t have to worry about bankrupting your business via employee training. You’d be able to pay regular expenses (bills, rent, etc) for several months despite revenue dropping to its lowest point of the year.
The Price Of Good Help
Like any worthwhile investment, new employees do not produce returns right away. A business will most likely have to shell out thousands of dollars in payroll expenses before the new employee starts bringing in revenue. For example, if you were to hire someone at a $20,000 base salary with an additional $10,000 on taxes and benefits, you would be paying the employee’s entire $2,500 monthly expense with your own funds for approximately two to three months. By the third month, the new employee will start chipping away at his or her own cost. Not until the eighth or ninth month, however, will the employee begin actively contributing to the company’s revenue stream.
Another fairly common scenario is businesses hiring a new employee so current employees can focus on tasks directly linked to revenue. If an employee generates $50 per hour in gross profit, it would make sense to hire someone else to handle anything else that employee does that costs considerably less than $50 per hour. Such responsibilities might include bookkeeping, business development, or social media strategy. The current employee would still need to train this new employee and lose productivity but it probably wouldn’t be more than a month or two before the new employee starts to pay for him or herself, meaning you’d need a very small loan at best.
Outsourcing vs In-House
Competing with the giants of your industry often means hiring employees to handle responsibilities you previously outsourced. You might have initially saved money outsourcing accountants and digital marketers but now, it is simply more cost-effective to hire an in-house employee because the responsibility has become more important. In the past, you might have paid a marketing firm $50,000 per year to do 10 hours of work per week. But now that your company has grown, it’s more sensible to hire a digital marketing expert to work 40 hours a week for the same price. Since you are already saving money, this transition might not call for a small business loan.
We Understand How Confusing This Can Be!
The business funding experts at United Capital Source have helped countless small businesses take on new hires, both lower and upper-level, while maintaining a steady budget. If you are unsure about financing the training and assimilation process, UCS is glad to walk you through every step and make sure you borrow the perfect amount for your financial standing. Let us make sure you have enough money to grow your business while you concentrate on, well, growing your business!